Barratt Expects Profits To Rise By 108% - Is This The Start Of The Housing Recovery?

There were continuing positive signs for the housing market on Wednesday after the UK's biggest housebuilder said it expected a huge profits rise in 2013.

House builder Barratt said in a statement on Wednesday that it expects pre-tax profit over the half year period to rise by 108% to £45 million.

In addition, it completed 5,085 units in the last six months of 2012 and secured private forward sales, excluding joint ventures, of £536.5m by the end of December, up 35.5% over the prior year.

Group chief executive Mark Clare said: "This has been a good first half performance. In addition, we have been investing for the future, successfully securing higher margin land both in the south-east and across the rest of the country that will drive further profit growth."

Redmayne-Bentley stockbroker Phil Wong told the Huffington Post UK that despite the sector as a whole seeing some woes of late, some signs of recovery had appeared at the end of last year.

"Barratt Developments in particular added that they expect to deliver a significant improvement in profit during 2013, with margins and land acquisitions both on the up," he added.

Taylor Wimpey, which had seriously struggled in 2009 due to its massive debts, said it had been helped by a number of major lenders reducing their mortgage rates due to the Bank of England's £80 billion Funding for Lending scheme.

Mortgages approvals on the increase

And in yet more positive news, the Council for Mortgage Lenders revealed the number of loans for house purchase in November had increased by 6%, driven by the activity of first time buyers.

A total of 21,700 loans were given to first-time buyers in October, worth £2.7bn, representing an 8% rise compared to October and up by 24% on November last year.

For the second consecutive month, loans to first-time buyers accounted for 41% of all house purchase loans, higher than the usual proportion of 38%.

CML director general Paul Smee said in a statement: "We expect the Funding for Lending scheme to continue to encourage a downward drift in interest rates. This may prompt an increase in remortgage activity as borrowers seek to take advantage of lower rates."

However, a note of caution was offered by business analyst Nick Hood, who warned that the effects wouldn't be felt immediately.

"Despite some uncertainty about where the residential market is heading as the economy goes on flatlining, the reality is that far too few houses are being built even though demand is rising along with the population," he said.

"This will continue to be good for house builders and must eventually force a sustained recovery in the market once the government and lenders address the very real issues faced by first time buyers.

“The only bugbear for the sector is the huge long term investment it has to make in carrying substantial land banks to ensure a readily available stock of sites to meet increasing demand. This is a fundamental part of the business model, but an expensive one. More flexibility in the planning process is needed to reduce this inventory lock up."